Can the “College Premium” Withstand Hyperspecialization?

College graduates have long earned more than workers with only a high school diploma. Economists call this differential the college premium. A recent study by Georgetown’s Center on Education and the Workforce reports that the college premium has increased over the past decade, from 75 to 84 percent. During a summer of mostly bad economic news, here was ray of hope—at least for the quarter of Americans who hold a bachelor’s degree.

But after learning of this study, I felt nagging concern about what the future might hold. Two factors triggered my unease: the trends described by my co-authors and I in our recent HBR article and new work by Nobel Prize-winning economist Michael Spence.

In The Age of Hyperspecialization (July-August 2011, co-authored by Tom Malone of MIT and Tammy Johns of Manpower), we note that the division of labor, a development that transformed the way physical work was accomplished during the industrial revolution, may now be poised to redefine how knowledge work gets done in the 21st century. Our term hyperspecialization refers to the change knowledge workers will undergo as some or all of the tasks they currently perform, as part of a single job, get broken up, sometimes into tiny micro-tasks, and assigned to many workers connected by the Internet. It is already happening through experiments at large firms and through hyperspecialization intermediaries like TopCoder, Innocentive, Amazon Mechanical Turk, or CrowdFlower. For example, TopCoder develops software for its corporate clients, a task traditionally assigned to a team of engineers, by dividing the work into small modules and farming those out to its global community, which has more than 300,000 members. We predict that hyperspecialization, a niche phenomenon today, will over time become mainstream.

Hyperspecialization can be far more productive than current approaches for organizing knowledge work and can also ease talent shortages. In addition, it promises to be a boon to workers in developing countries. Samasource and txteagle, for example, are improving the lives of many people, especially women, in rural areas of Africa and South Asia.

As we thought about a future in which hyperspecialization was common, we recognized that lower-value knowledge work now done in the U.S. and other advanced economies would migrate overseas. But we thought the resulting productivity gains would broadly benefit all participants in the global economy. And for citizens of advanced countries, we imagined there would be plenty of work designing and overseeing the hyperspecialization process.

After our article was published, I learned of Spence’s new research on the evolving structure of employment in America. This work has led me rethink some of my prior assumptions about the likely impact of hyperspecialization.

In a Council on Foreign Relations working paper co-authored with Sandile Hlatshwayo of NYU’s Stern School, Spence turns his attention to employment trends in the U.S. The CFR paper tells the story of where U.S. jobs were gained and lost between 1990 and 2008. In industries that compete in the international economy (what economists call the tradable sector), the emergence of global supply chains for physical goods caused lower-value manufacturing jobs to migrate from the U.S. to emerging economies. These losses were offset by growth in higher-value-added jobs in consulting, finance & insurance, and computer systems design. Overall employment in the tradable sector thus stayed flat at roughly 34 million. Employment grew substantially in the parts of the economy that don’t compete globally (the non-tradable sector), rising from just under 80 million in 1990 to nearly 115 million by 2008. Half of this job growth came in health care, government, retail, and construction. Many of these new jobs were a poor fit for manufacturing workers who had been displaced.

I find this account of recent trends troubling. If hyperspecialization becomes mainstream, it would lead to the development of global supply chains for knowledge work similar to the ones that have emerged in manufacturing. And this would likely result in the loss of large numbers of white-collar jobs, much like the loss since 1990 of blue-collar jobs documented by Spence and Hatshwayo. And given current fiscal and credit constraints, it’s unlikely that overall U.S. employment will be boosted in the future by job growth in government, health care, retail, and construction, as it has over the past twenty years.

All of this could make for a less than rosy outlook for American college graduates. The college premium has been a bright spot for the U.S. economy, this summer and over prior generations. But it could well be in jeopardy.

What to do? In an article in the current issue of Foreign Affairs, Spence offers a prescription, from a perspective informed by close study of the strategies that fueled growth and created jobs in emerging economies. He notes that while the private sector is the key to job creation, it cannot accomplish the task alone. He calls for expanded U.S. public investment in education, infrastructure, and development of new technologies to create the industries of the future, even while acknowledging that budgetary challenges will make funding such investments difficult. He cites Germany, which values employment as a policy goal and has accepted slower income growth to maintain jobs. In wrapping up, Spence notes that for the U.S. even to identify long-term job growth as a policy priority would be a valuable step forward.

Given the current stalemate in Washington, action on such an agenda is unlikely until after the 2012 election. For the sake of my children—one a recent college grad and the other a rising senior—and also for their peers who may not have had the inclination, or good fortune, to pursue the college path, I hope our country rises to meet the challenge.

Robert Laubacher is a research scientist and associate director of the Center for Collective Intelligence at MIT’s Sloan School of Management.